As
the incoming administration faces what is considered the worst economic
crisis since the Great Depression, it seems that tools that the Roosevelt
administration used to deal with that earlier crisis are the mainstay
of the current policy. But the lesson of history is that trends and
developments seldom proceed in a straight line. The future is more
likely to bring a reversal of past trends than their further continuance
to the point of exaggeration and unbearable excess.

So
it is with economic policy today. We are dealing with accumulated
problems in
an economy forged in the New Deal era. This is an economy in which
the
federal government plays an active role. Certain lessons learned from
experiences in the Great Depression are fixed in public policy, supported
by an economic
priesthood in government and academia that did not exist seventy-five
years ago.

What
are some of these “lessons”?

(1)
Jobs cannot be created by shortening work time. Where the free
market
does not provide sufficient
consumer demand, it’s counterproductive
to try to create new jobs by forcing some workers to share their work
with
others through reduced hours. That amounts to “sharing the misery”.

(2)
Trade protectionism fails to preserve jobs in the domestic economy.
The experience
of the Hawley-Smoot Tariff Act of 1930 was that, when one
nation tries to protect
its jobs by imposing tariffs on imported goods, its trading partners retaliate
by imposing tariffs of their own. The net result is a decline in both imports
and exports. No jobs are gained.

(3)
A good way to open up new jobs in the economy is to make it financially
possible for older workers to retire. The
Social Security system encouraged the growth
of retirement as an alternative to shorter hours for active workers.

(4)
During economic downturns, government needs to create an artificial
demand
for products through its own spending, even if it incurs a budget
deficit. And if
ordinary deficit spending will not work, a full-scale war may do
the trick. Ultimately, it was World War II, not the other New Deal
programs,
that
lifted our nation
out of the Great Depression.

In
the mid 1940s, we had an international conference at Bretton Woods
that set policies for trade and development
in the post-war years. Legislation
enacted in 1946 set economic goals and created a Council of Economic
Advisers
to steer
the right course. Keynesian economics plus judicious monetary regulation
through the Federal Reserve Board became public policy. This has
led us to the present
state of affairs.

The
problem is that years of “free trade” have
decimated the nation’s
manufacturing base and increasingly its white-collar occupations
as well. Chronic budget deficits have created a huge national debt that
the time that we need
further deficits to keep unemployment from rising to intolerable
levels. Instead of further “pump priming”, we need to have
a continuing flow of water. We need jobs - good, productive jobs - but
they have been lost in an economy
given over to financial manipulation.

Herbert
Hoover would have had a better sense of what needs to be done than
economic policy makers today.
In the late 1920s, U.S. capitalism
had just
experienced the most remarkable growth in its history, fueled by
consumer spending. Henry
Ford best explained the mechanism of that growth when he said: “The
people who consume the bulk of goods are the (same) people who
make them. That is a
fact we must never forget - that is the secret of our prosperity. "

In
plain academic English, this means that a healthy economy is
defined by a reciprocal arrangement between capital and labor in
which workers
help
to produce
goods and receive a wage in return. Business supplies the goods
in exchange for money that comes from workers’ wages. Not
only do businesses need to earn a profit, but workers need to
receive adequate wages to support consumer spending
and leisure. They need adequate leisure both to support a lifestyle
in which consumer products can be meaningfully used and to maintain
employment as labor
productivity steadily increases.

Instead,
what we have had in recent decades is a continuing advance in labor
productivity,
a shift in employment from productive
to nonproductive sectors
of industry, stagnation and even reversal of previous reductions
in work
hours, and an economy that increasingly produces output that
is not useful or needed
in human terms but is instead a “necessary evil”.
Our standard of living may improve in financial terms but not
in reality.

The
basic relationship between these various factors is described by
the equation: Output equals labor productivity
times employment
times
average
hours of work.
Productivity is a ratio between output and gross hours (employment
times average hours per worker). Output is whatever product
is furnished in
a dollar-driven economy, whether useful or not. Employment
and average work
hours are elements
that can be directly measured and compiled by government
statisticians.

Let’s
see how these various factors changed during the periods before and
after the Great Depression keeping in mind
that measurement of output (gross
domestic product) and productivity dates back to the work
done in the 1930s. However, the type of employment and numbers
employed may indicate the nature
of output in those earlier years.

With
respect to average work hours, the U. S. Census Bureau does a monthly
survey of hours
worked by individuals, called
the “household series”, which
provides information for the period after World War II.
For the earlier period, we have statistics developed
by economist Paul Douglas (later U.S. Senator from
Illinois), Ewan Clague, the National Bureau of Economic
Research (NBER), and others. We will use the NBER numbers.

They
show that the average workweek declined from 53.7 hours
per week in 1890 to 41.2 hours per week in 1950.
The period
of most
rapid decline
was
between
1920 (49.8 hours per week) and 1940 (43.9 hours per
week), with two thirds of it occurring in the 1930s. Over the
entire 60-year
period,
we have
a decline of 2.08 hours per week per decade.

In
contrast, the household series shows that average hours worked by
all persons
declined from 43.5 hours
in 1947
(41.7 hours in
1950) declined
to 39.1 hours
in 1970 and to 38.5 hours in 1980 but subsequently
rose to 39.2 hours in
2006. Over the 60-year period between 1947 and 2006,
there was an average decline
of 0.72 hours per week per decade, but more than
40 percent of it occurred in the
first three years. The average workweek has actually
increased in the period since 1980.

Clearly,
the period after the Great Depression saw, at best, a leveling off
of average
work time per
week in
comparison with the
earlier period
in which
work
time steadily declined.
Now let’s look at employment, the other area in which we have hard
information over a number of years. There was an increase in the number
of persons employed
in the U.S. nonfarm economy from 27, 340,000 in
1920 to 142,221,000 in 2006.

I
wish to make a distinction between industries in which presumably
useful goods are produced and
industries
that
are services-oriented
or are in
government whose
claim on usefulness is more tenuous. The Bureau
of Labor Statistics distinguishes between “goods-producing” industries
(mining, manufacturing, and construction) and “service-producing
industries” (transportation
and public utilities; wholesale and retail trade;
finance, insurance, and real estate; “services”;
and government).

Employment
in the goods-producing industries rose from 12,828,000 workers in
1920
to 20,434,000
workers
in
1960, and to 28,813,000
workers in
2006. In the
service-producing industries, employment rose
from 14,605,000 workers in 1920 to 33,756,000
workers
in 1960, and to
113,408,000 workers
in 2006.
As a percentage
of total nonagricultural employment, the goods-producing
industries employed 46.9 percent of the total
in 1920; 37.7 percent of
the total in 1960;
and 20.0 percent of the total in 2006.

As
a school boy, I learned that “food, clothing, and shelter” described
the basic material needs of people. Such
products would be furnished by agriculture, manufacturing, and the
construction
industries respectively, if not acquired
through international trade. In 1860, agriculture
accounted for half of U.S. employment. In 1947, it was down to
13.8 percent. By 2006, only 1.5 percent of
American workers were employed in agriculture
and related industries.

That
means that in 2006 only 21.5 percent of Americans were engaged in
providing that “food, clothing,
and shelter” that are at the core of human
needs. What were the other 78.5 percent
of the work force doing? Was the tremendous explosion of their
product
contributing much to people’s happiness and
well being?

In
this day and age, I would concede that entertainment-related products
do contribute
to happiness in our
type of culture. Transportation is
important to people who
wish to travel or commute. Public utilities
help keep our homes heated in the
winter and supplied with electricity.
At a certain level, health-care and educational
services are
justifiable; but not at the level
to which they
have lately become
accustomed. Such services have become “necessary
evils” more than
they are sound economic products.

Let’s
focus on several types of products:

(1)
health care,

(2)
military activities,

(3)
crime, punishment, and incarceration,

(4)
education,

(5)
gambling, and

(6)
consumer credit.

These
are all growth areas in the U.S. economy. I would
generally describe them
as “necessary
evils” - to wit,

We
would not need health-care services if we did
not get sick. Excessive services
of
this
sort can
actually
make
people sick
or sicker. Therefore,
increased
expenditures for health-care services
do not mean that we are becoming
healthier. In 1950,
health-related expenditures consumed
4.5
percent of GDP. This rose to 9.1
percent of GDP in
1980; and to
15.3
percent in
2004. We
spend more
on health
care than
other comparable nations. The United
Kingdom, for
instance, devotes 8.3 percent of
its GDP to that purpose; France,
10.5 percent;
Japan, 8.4
percent. If
present trends continue, the Congressional
Budget Office estimates that by
2082 half of the U.S. economy could be
devoted to
satisfying health-care needs.

We
would not need military protection
unless we felt threatened by
a foreign power that
might invade
our
country or otherwise
use violence
against us.
However, excessive use of military
force on our part, such as the
Iraq war, could
actually
incite anti-American sentiment
and make the possibility
of future violence more real.
In 2005, the United States devoted
4.1 percent
of GDP to
military
activities,
and had 109,306 persons under
arms.

We
would not need government bureaucracies to deal with crime
if people did
not commit criminal
acts.
A certain
amount
of crime will occur.
However, it’s
possible to boost activity
in this area by passing laws
that
criminalize previously permitted
acts, or by making crime-related
procedures more rigorous, or,
of course,
by denying persons at risk
opportunities for employment
as an alternative
to a life of crime. In 1950,
there were 166,123 inmates
in federal and state prisons.
This number jumped to 315,974
persons in 1980; to 773,919
persons
in 1990; and to 1,525,924 persons
in 2005. In fact, in 2005,
more than 7 million Americans
were either in jail or in prison,
on probation, or on parole.

In
addition to allowing some
serious-minded individuals
to pursue truth, education
has become a gate-keeper
to employment
whose
function can
be increased by increasing
the competition for jobs
and imposing ever higher academic
requirements
for those
who seek to enter
a profession.
Most professionals
favor this as a
means of limiting
access to their profession
and keeping fees or salaries
high.
The number
of Americans obtaining bachelors
degrees increased
by 55
percent between
1980
and 2005; masters
degrees, by 93 percent; and
PhD’s, by 61 percent.

Gambling
can be a harmless diversion
for some, but for
many Americans
it has become
an addiction
leading
to
economic ruin. It’s
disheartening to see government
sponsor lotteries as a
revenue-raising scheme.
In 2004, the social
cost of gambling in the
United States was estimated
to be
$54 billion.

The
interest that one pays on credit
cards, mortgages,
and
other forms
of debt do not
make a person
happy but are a
necessary consequence
to borrowing money out of
careless pleasure
or satisfying real needs.
While earned
income
remained
flat, credit-card debt
rose by 31 percent between
2000
and 2005.
The housing bubble provided
alternative funding to
meet current expenses.
Americans
took out $2 trillion
in home-equity loans
and mortgage refinancings
between 2002 and 2005.
A bombardment
of ads,
combined
with easier standards
for credit, persuaded Americans
to enjoy
a more abundant
lifestyle without increased
income.

These
categories hardly exhaust the list
of questionable
economic activities.
Does it contribute
to human
happiness or well being
when a telemarketer
hooks a person on a
purchase that must be made immediately
to lock
in the
best
deal? Or, how about
an expensive
gift to a loved one
at Christmas? Is the
gift made
in a spirit of joy
or love; or is it done out
of fear that omission
of
such a gift will raise
suspicions of being
mindlessly selfish
or weakening
in
affection? Our high-pressure
economy pushes products
on consumers in so
many ways.
And
the
government welcomes
this activity
as a source of its
own revenues, whether
or not the products
bring a real benefit
to people.

Regardless
of GDP calculations,
this is not true
national wealth. In Wealth
of
Nations,
Adam Smith
observed: “Whatever
be the actual state
of the skill, dexterity,
and judgment with
which labor is applied
in
any nation, the abundance
or scantiness of
its annual supply
must
depend ... upon the
proportion between
the number of those
who are annually
employed in useful
labor, and
of those who are
not so employed ...
The
labor of some of
the most respectable
orders
in the
society is, like
that of menial servants,
unproductive of any
value .. Both productive
and unproductive
laborers,
and those who do
not labor at all,
are all
equally maintained
by the annual produce
of the land ... This
produce, how great
soever
... must have certain
limits. Accordingly,
therefore, as a smaller
or greater proportion
of it is in any one
year employed in
maintaining unproductive
hands,
the more in the one
case and the less
in the other will
remain
for the productive,
and the next year’s
produce will be greater
or smaller accordingly.”

Benjamin
Franklin made the
same point
even
more succinctly.
Writing
to
an American friend
from France, he
asked: “What
occasions then
so much want and misery?
It is the employment
of men and women
in works that produce
neither the necessaries
nor conveniences
of life, who, with
those who do nothing,
consume the necessaries
raised by the laborious
... Look around
the world and see the
millions employed
in doing nothing
or something that
amounts to nothing
... Could not these
people, now employed
in raising, making,
or carrying superfluities,
be subsisted in
raising necessaries? I think
they might ...
It has been computed
by some political
arithmetician
that if every man
and woman would
work for four hours each
day on something
useful, that labor
would secure all
the necessaries
and comforts of life,
want and misery
would be banished
out of the world,
and the rest of
the 24 hours might be
leisure and pleasure.”

That
is the question,
more pertinent
today after decades
of progress
in “labor-saving” technology
than in Smith’s
and Franklin’s
time. Why put
ourselves through
this rat
race of needless
production and
the intensifying
competition for
jobs when
all we need to
do is cut work
time, lure workers
back into useful
production, and
enjoy the undiminished
produce in leisure
time? Are we
against this
because
such a solution
seems too “French”;
and the French,
of course, are
wimps when it
comes to waging
wars
or competing
in global economies?
But what
kind of fools
are
we? Did they
or we let the
banks
collapse under
the weight of
unrestrained
gambling debts
or fall for multi-billion-dollar
Ponzi schemes?
Our national
comeuppance
is surely at
hand.

Back
in the days of Herbert
Hoover,
our
nation’s
political and
business leaders
had a better
grasp of reality.
When the Great
Depression
hit, President
Hoover publicly
urged that
workers’ hours
be cut in preference
to layoffs.
At his urging,
the
president of
Standard Oil
of New Jersey
(now Exxon
Mobil) toured
the country
recommending
shorter work
hours (with
reduced
pay). Organized
labor was divided.
Some union
leaders were
opposed
to the idea
of cutting
hours
and pay. However,
the American
Federation
of Labor made
its
own proposal
of a
five-day week
with no cut
in pay. Late
in
1932, Senator
Hugo Black
of Alabama
introduced
a bill in Congress
calling for
a 5-day, 30-hour
workweek. This
bill
easily passed
the U.S. Senate
but then ran
into unexpected
opposition
from
the incoming
Roosevelt administration.
It was buried
in the House
Rules Committee.

In
hindsight,
one sees
that shorter
work hours
may not
have been
the right
remedy for an economic
crisis
caused
by a
collapse
of public confidence.
Maybe
bank holidays,
deposit insurance,
fire-side
talks, and government
spending
addressed
that problem more
directly.
The shorter-workweek
proposal
is
better suited
to
deal
with the
long-term
adjustment of employment
to continual
year-to-year
improvements
in labor
productivity.

It
was not that President
Roosevelt
was opposed
to the
idea of cutting
hours;
he wanted
to include
this
proposal
in a
broader
package of economic
reforms.
The National
Industrial
Recovery
Act
of
1933
(NIRA)
regulated wages and
hours through
industrial
codes.
In May, 1935,
the U.
S. Supreme
Court
declared
it
unconstitutional
because
of a questionable
link to
interstate commerce.
After
President
Roosevelt
unsuccessfully
attempted
to pack
the court,
his administration
enacted
two
other pieces
of
legislation
to
regulate
hours:
the Walsh-Healy
Public
Contracts
Act
of 1936
and the Fair
Labor
Standards
Act
of
1938.

The
second
law has
become
the
cornerstone
of federal
work-hours
regulation.
Essentially,
it set
a 40-hour
standard
workweek
and required
employers
to
pay an
overtime
penalty
of
half-time
extra
pay for hours
worked
beyond
the standard.
There
was both
firmness
and flexibility
in this
law.
Unfortunately, however,
it had
a
fatal
flaw.
The time-and-a-half
wages
that the Fair
Labor
Standards Act required
became
an incentive
for
employees
to
work
longer hours as
much
as it was
a disincentive
for employers
to
schedule
such
work. The labor
movement
was
diverted
from
its original
purpose
of reducing
work
time. Instead,
union
members wanted
the extra
money
they could
earn
in overtime.

In
the 1950s
and
1960s, when
federal
policy
makers
worried
about
the
effect
of
automation on employment,
some
proposed
that
further
cuts
in
hours be
made.
The
Senate Special
Committee
on
Unemployment, chaired
by
Eugene
McCarthy
of
Minnesota,
made
certain
recommendations.
Much
to
Senator McCarthy’s
later
regret,
its
package of recommendations
did
not include
reduced
work
hours.
Why
not?

In
the late
1950s,
the
shorter-workweek
question
was
seen
to
be
in
the
hands
of
three
interest
groups:
organized
labor,
which
supported
shorter
hours;
the
business
community,
opposed
to
this
idea;
and
government,
a
neutral party,
In
reality,
labor
was
far
from
being
a
strong supporter
of
the
shorter-workweek
proposal,
and
government
was
far
from
being
a
neutral party.
In
reality,
government
leaders
wanted
to
keep
America’s
workers
working
long
hours
in
order
to
provide
financial
support
for
their
various
projects.

The
Secretary of
Labor in
the Kennedy
administration, Arthur
Goldberg, said: “It
is my
considered view
that the
effect of
a general
reduction in
the workweek
at the
present time
would be
to impair
adversely our
present stable
price structure
by adding
increased costs
that industry
as a
whole cannot
bear.” While
a U.S.
Senator, Lyndon
Johnson had
said: “Candor
and rankness
compel me
to tell
you that,
in my
opinion, the
40 hour
week will
not produce
missiles.” It
was missiles
to fight
communism rather
than leisure
for America’s
workers that
won the
argument at
that time.

One
other voice
in the
argument should
be mentioned:
that of
academics. Paul
Samuelson, an
MIT economics
professor and
Nobel prizewinner,
wrote in
his best-selling
economics textbook
that the
shorter-workweek proposal
was based
on a “fallacy” which
he called the “lump-of-labor fallacy”: “The
lump-of-labor argument implies that there is only so much
useful remunerative work to be done in any
economic system, and that is indeed a fallacy ... There is
no doubt that drastic shortening of hours would imply lower
real earnings than a full-employment economy
is capable of providing at a longer workweek.”

This “lump-of-labor
fallacy” was first enunciated in 1892 by a certain
D.F. Schloss who was discussing workers’ attitudes
toward piece work. In the first decades of the 20th Century,
the National
Association of Manufacturers
in a pamphlet adapted the concept to its fight against
the
eight-hour day. In reality, it was a straw-man argument,
something advanced by critics of shorter
hours rather than by its proponents. An abler and better-informed
economist than Samuelson, Paul H. Douglas at the University
of Chicago, wrote a book, “The
Problem of Unemployment”, in which he furnished evidence
of a positive correlation between shorter work hours and
higher hourly pay - quite the opposite
of Samuelson’s assertion.

Today,
one seldom
hears of
proposal for
a shorter
workweek except
from political
leftists whose
small vote-getting
performance tends
to discredit
their ideas.
Instead, the
action has
shifted abroad
- first
to western
Europe where
weekly schedules
of hours
have dropped
to below
40 and
where annual
vacations of
five and
six weeks
are not
uncommon; then
to Japan,
determined to
reduce its
workers’ extreme
hours to a level at or below that of other First World
nations; and finally to China whose People’s Congress
enacted a 5-day, 40-hour week in 1995, ushering in a
period of unprecedented leisure and wealth for the Chinese
people.

In
the meanwhile,
U.S. “realists” managed to stifle all progress.
The trade-union movement had run out of steam. Business,
under the thumb of Wall Street money managers, was
focused on improved quarterly earnings and pumped-up
CEO pay. Government, fiscally irresponsible, never
seriously considered any measure
that would threaten its taxpayer-supported revenue
stream. The last serious attempt to enact shorter-workweek
legislation in the United States was Rep. John Conyers’ bill
introduced in April 1985.

Now
we come
to the
present economic
collapse and
the dawn
of a
new presidential
administration. In
some respects,
Barack Obama’s prospects resemble those
of Franklin D. Roosevelt when he first became
president, except that the labor movement is
weaker and appeals for shorter work hours are seldom heard.
Yet,
the fundamental challenge of this administration
is jobs - how to restore productive, high-paying
jobs.

The
challenge has
become more
difficult because
the U.S.
economy is
embedded in
a global
economy, more
difficult for
a national
government to
control. Due
to outsourcing
of production,
industries which
once flourished
in the
United States
no longer
exist in
this country;
those jobs
have disappeared.
The incoming
president, who
once organized
communities on
the south
side of
Chicago in
the wake
of steel
mill closings,
is certainly
aware of
the problem
though he
has surrounded
himself with
economic advisers
steeped in
the old
traditions.

I
think the
shorter-workweek
proposal
still has
a place
in our
nation’s
economic policy. For better or for worse,
however, such a proposal must be advanced
in the context of a global economy. If we
keep an open mind on the subject, we will
find that foreign governments and economic
leaders may also be receptive
to the idea of shorter hours. It is they,
after all, who have had more recent experience
with this type of change than we. In all
nations, both developed and
undeveloped, there is a problem of potential
or real unemployment. Industrial technology
lets more output be produced with fewer
workers. A comparable adjustment
needs to be made in hours.

While
businesses may
profit from
this labor-saving
technology, ultimately
they need
consumers with
sufficient purchasing
power to
buy their
products. The
outsourcing model
in which
workers live
in one
country and
consumers live
in another
cannot be
sustained indefinitely.
We need
to find
new ways
to have “the people
who consume the bulk of goods,” be,
in Henry Ford’s words, “the
(same) people who make them.” Only
through a balanced ecological relationship
between production and consumption
can the free market continue to flourish.
That is our long-term challenge, not
to be confused with short-term fixes
of the credit market.

This
leads us
to the
second “lesson” allegedly
learned during the Great Depression:
that a national government cannot
impose tariffs on products
imported from other countries lest
this move spark a self-defeating “trade
war”. Yes, the Hawley-Smoot
Tariff Act of 1930 did provoke
retaliatory moves. However, the
situation today is different
than it was in the 1930s.

Today,
we do
not have
businesses tied
to particular
nation states
that compete
with businesses
tied to
other nation
states. We
do not
have, for
instance, General
Motors’ Chevrolet competing
for customers against the
Volkswagen of Germany, the Fiat of Italy,
Renault of France, or Toyota
of Japan, where any move by
the
U.S. Government to protect
Chevrolet by erecting tariffs
would provoke retaliation
by the German, Italian, French,
or Japanese governments. No,
General Motors is
a multinational corporation
with subsidiaries in many
foreign countries. Toyota is a corporation
which produces cars in the
United States as well as in Japan.

The
reason free
trade must
be rejected
is because
it hasn’t worked. Any
healthy trading system must
feature reasonably balanced
trade, not an exchange
of goods for debt or for the
productive assets of another
country. The United
States has shown itself
to be incapable of maintaining
balanced trade relations
with other countries. In
1960 and in 1970, we had
a small surplus in our
trading
accounts. The balance shifted
toward a deficit in 1980
although it was small.
In real 2000 dollars, the
trade deficit climbed from
$78 billion in 1990 to
$92
billion in 1995, to $380
billion in 2000, and to
$763 billion in 2006. In actual
dollars, the trade deficit
has been increasing by
$80 billion to $100 billion each
year in the 21st century.

Equally
revealing,
in
my view,
is the
composition
of
trade. In
2006, 46.8
percent
of
the $1.845
trillion of
imported
products
for consumption
in the
United States
came from “related
parties” which
means trade between
U.S. companies
and their foreign
subsidiaries
or between foreign
companies and their
U.S. subsidiaries.
(Apparently, this total
does not count trade
between U.S. companies
and unowned
but closely affiliated
contracting firms
or suppliers
abroad.) On the other
hand, only 27.0 percent
of U.S. exports represented
trade between related
parties.

In
other
words,
nearly half
of all
U.S. imports
in 2006
represented
the
intracorporate
trade
of multinational
businesses.
Business,
I suspect,
was purchasing
products
from
itself
in
cheap-labor
areas
and selling
to the
high-priced
consumer
market in
the United
States. The predominance of intracompany trade tends to invalidate
the theory of comparative advantage that is at the core of free-trade
arguments.

What
do
we
do about
this
situation?
If
international
trade
is
cost-driven,
then
the United
States
needs
to
impose
tariffs
on
low-priced
goods
produced
in
low-wage
factories
abroad
in
order
to
equalize
costs
or at
least
make
American
consumers
pay
for
part
of
the lost
production
in
the
United
States.
I
think
that
tariffs
need
to be
directed
at
the
individual
company,
or
even
the
factory,
which
is exporting
the
goods.
It would
be
a
system
of “employer-specific tariffs”,
driven by information
gathered and
verified by auditing of foreign
facilities and
calculated by a computer.

I
also
think
that such
a system
could
be
implemented
with
the
consent
of the
international
community
including
both
national
governments
involved
in
the
trade.
After
all,
while
chronic
trade
surpluses
such as
those
enjoyed
by China,
Germany,
and
Japan
may
seem
difficult
to renounce,
the end
result
of
chronically
unbalanced
trade
would
be to
hold
a
reserve
of
increasingly
worthless
dollars.
The
economic
piper
will be
paid
in
the end.

Reform
of
international
trade
needs
to
be
combined
with
a
worldwide
move
toward
shorter
work
time
in
a
single
development
package
accepted
by
all
governments
in
the
world.
As
part
of
this
package
there
would
be
a
restructuring
of
economic
activity
to
meet
new
environmental
challenges
-
Global
Warming,
depletion
of
oil
and
water
reserves,
disposal
of
waste
materials,
etc.
Governments
nationally
and
internationally
need
to
build
financial
incentives
into
the
required
new
ways
of
doing
business
so
that
future
generations
will
find
suitable
material
conditions
in
which
to
maintain
human
civilization.

Here
again
the
lesson
learned
in
the
Great
Depression
through
the
experience
of
the
Hawley-Smoot
Tariff
Act
should
not
be
set
in
stone.
Economic
conditions
change.
The
question
is
whether
economists’ minds
will
change.

I
will
touch
briefly
on
the
other
two “lessons” or
legacies
bequeathed
to
us
from
policy
makers
during
the
Great
Depression.
First,
there
is
the
Social
Security
program
as
a
mechanism
for
allowing
older
workers
to
retire
so
younger
people
can
take
their
place.
Second,
there
is
World
War
II
as
an
example
of
effective
economic
stimulus.

The
Social
System
has
had
the
greatest
lasting
impact
upon
our
economy.
Certainly
its
impact
was
positive
for
the
many
older
Americans
able
to
retire
in
comfort.
The
impact
has
been
negative,
however,
upon
the
budget
of
the
United
States.
Billed
as
an
insurance
program,
it
has
not
been
properly
funded.
Social
Security’s
huge pot of money has been an irresistible lure for politicians
eager to spend without taxation. The resulting underfunding
of
the program is, in effect, a
tax on future generations of workers who will pay more into the
program than the benefits that they will receive upon retirement.
Furthermore, the Social
Security Disability program has become a welfare substitute for
too many people, fostering the idea that the federal government
will take care of people if they
manage to “medicalize” their
situation.

World
War
II
is
fondly
remembered
as
a
triumph
of
national
purpose.
Our “greatest
generation” participated in that difficult event.
Few would claim that President Roosevelt got this nation
into war in order to end the Great Depression;
defeating Hitler, Mussolini, and Tojo must be given at
least equal billing. On the other hand, this great war
may have set a precedent for other wars to come.
It left in its wake the “military-industrial complex” of
which
President
Eisenhower
warned.
Perhaps,
it
has
created
interest
groups
in
favor
of
wars:
defense
contractors,
certain
veterans
organizations,
flag-waving
politicians,
etc.
Our
lesson
must
be
that,
while
wars
may
sometimes
be
necessary
for
real
national
defense,
they
should
never
be
used
as
a jobs
program.
There
are
better
ways
to
provide
economic
stimulus.

In
summary,
it
would
be
a
mistake
for
the
incoming
Obama
administration,
members
of
Congress,
and
others
to
accept
uncritically
the
conventional
wisdom
inherited
from
the
Great
Depression.
Lessons
too
well
learned
should
often
be
reexamined.
While
some
parallels
exist
between
events
in
those
times
and
in
our
own,
the
world
is
changed
in
so
many
ways.
We
are
truly
living
in
a
global
economy
and
society.

Economic
growth
is
pushing
against
the
limits
of
finite
natural
resources.
Thanks
to
George
W.
Bush
and
others,
the
United
States
is
on
shaky
grounds
as
an
economic
and
political
superpower.
We
will
need,
instead,
to
be
creative
much
like
those
who
weathered
the
earlier
crisis.
Maybe,
even,
the
approach
taken
by
President
Hoover
will
be
given
a
second
look.